Brown Brothers Warns On Deterioration In State And Local Government Deficits, Cautions Of Comparable European Collapse

Brown Brothers joins Meredith Whitney, who earlier noted that the collapse of state and local government funding is one of her primary concerns, in warning that the “The similarities between Europe and the US, in terms of debt and deficit issues, are much greater than the different political, social and regulatory regimes may suggest. While investors are well acquainted with the US federal deficit, they may be only vaguely aware of the increasingly difficult strait of many US states and local governments.” BBH’s Marc Chandler, Head of Currency Strategy, presents his view on the dramatic surge in regional deficits, and concludes that Whitney’s words of caution need to be seriously considered: “The essay does warn that the cutbacks by state and local governments will retard the US economic recovery for the next year or two. These cuts have blunted the impact of increased federal stimulus. Going forward, perhaps after the November Congressional elections, the increase in federal spending will also slow, reducing its offset of state and local budget cuts. The US may face a greater fiscal drag than many observers suspect due to the impact of state and local government fiscal conditions. Investors would do well to consider the possible impact of similar fiscal conditions in European regions and cities.” Yet Chandler’s most relevant observation is that even as the domestic implications of this topic have been largely underreported, what is happening in Europe is likely far worse, and even more under the radar.